Credit market commentary

Credit market commentary: September 2022

Markets were gripped with volatility once again in September. Stubbornly high inflation, hawkish Fed rhetoric and poor earnings results in certain economic bellwether stocks weighed on markets with little reprieve.

October 11, 2022

Data as of September 30, 2022, unless otherwise noted.

Performance (total returns)

BenchmarksSeptember 2022YTD
Bloomberg U.S. Aggregate Bond Index (Bloomberg Agg)-4.32%-14.61%
ICE BofAML U.S. High Yield Index (HY Bonds)-4.02%-14.62%
S&P/LSTA Leveraged Loan Index (Senior Secured Loans)-2.27%-3.25%

Performance data quoted represents past performance and is no guarantee of future results. An investment cannot be made directly in an index.

Credit markets declined in September: Markets were gripped with volatility once again in September. Stubbornly high inflation, hawkish Fed rhetoric and poor earnings results in certain economic bellwether stocks weighed on markets with little reprieve. Equities suffered their worst monthly decline of the year, down -9.21%, while high yield bonds ended the month down -4.02% and senior secured loans lost -2.27%. Credit continues to trade in response to dueling concerns over rising interest rates and slowing economic growth. In a sign that recession fears returned to the fore, the highest rated high yield bonds outperformed lower rated CCCs last month. In the loan market, the outperformance of BB rated loans over B rated loans was the largest since March 2020, as investors favored quality in this market as well. Still, concerns over interest rates remain, as evidenced by the relative outperformance of floating rate loans over fixed rate bonds. The 10-year U.S. Treasury yield rose for much of the month, briefly eclipsing 4% in intraday trading, before ending September at 3.83%. This weighed on the duration-sensitive Bloomberg Aggregate Bond Index, which lost -4.32%, its worst month of the year. The pace of credit market issuance remained anemic, with just $9 billion of high yield bonds and $8.4 billion of loans issued last month. On a year-over-year basis, high yield bond issuance is down 82% compared to the same period in 2021, while loan issuance is 69% lower. High yield bond fund outflows accelerated in September. Retail investors pulled nearly $7 billion from the asset class, bringing year-to-date outflows to roughly $42 billion. The loan market also saw steady outflows, the fifth consecutive month that the asset class has lost retail dollars.

Credit fundamentals remain supportive: With the path of economic growth top of mind, credit investors appear focused on the fundamentals underpinning the market. The release of Q2 data showed that, once again, fundamentals remained remarkably resilient. Revenue and EBITDA grew by double digits in both high yield bond and senior secured loan markets and margins improved. Leverage in both markets has returned to pre-COVID levels and sits below historical averages while interest coverage statistics have hit record highs. While the asset class tends to trade alongside broader risk sentiment, which may mean more volatility ahead, the solid fundamental backdrop gives us comfort around the medium- to long-term outlook for the asset class.

Key takeaways

  • Credit markets declined last month as volatility roiled financial markets. High yield declined -4.02%. Floating rate senior secured loans lost -2.27%.
  • Rising long-term interest rates pressured the duration sensitive Bloomberg Agg, which fell -4.32%, its worst monthly decline this year.
  • Despite negative returns are the headline level, credit fundamentals continue to improve.

Index descriptions: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency). ICE BofAML U.S. High Yield Master II Index is designed to track the performance of U.S. dollar-denominated below investment grade corporate debt publicly issued in the U.S. domestic market. S&P/LSTA Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market.

The indexes referenced herein are the exclusive property of each respective index provider and have been licensed for use by FS Investments. The index providers do not guarantee the accuracy and/or completeness of the indexes and accept no liability in connection with the use, accuracy, or completeness of the data included therein. Inclusion of the indexes in these materials does not imply that the index providers endorse or express any opinion in respect of FS Investments. Visit for more information.

This credit market commentary and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The credit market commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such credit market commentary. The credit market commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the credit market commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site